Question 1

Lessington Corporation purchases 4,000 shares of Gonzalez Company common stock for $150,000 as a long-term investment.The investment is classified as available-for-sale securities.Gonzalez has 500,000 shares of stock currently outstanding and the par value of the stock is $1 per share.Lessington's entry to record the purchase transaction would include a:

Accepted Answer

When Lessington Corporation purchases 4,000 shares of Gonzalez Company common stock for $150,000 as a long-term investment classified as available-for-sale securities, the entry to record the purchase transaction would include a debit to Long-Term Investments-AFS for $150,000. This is because available-for-sale securities are recorded at their fair market value on the date of purchase, and the investment is considered a long-term asset. The other options are not appropriate entries for this transaction.

Question 2

Marjam Company owns 51,000 shares of MacKenzie Company's 100,000 outstanding shares of common stock.MacKenzie Company pays $25,000 in total cash dividends to its shareholders.Marjam's entry to record this transaction should include a:

Accepted Answer

The answer of Marjam Company owns 51,000 shares of MacKenzie...

Question 3

Pravis Corporation owns 30% of Kuster Corporation.Pravis Corporation received $9,000 in cash dividends from Kuster Corporation.The entry to record receipt of these dividends is:

Accepted Answer

The answer of Pravis Corporation owns 30% of Kuster Corporation.Pravis...

Question 4

On January 4,Year 1,Barber Company purchased 5,000 shares of Convell Company for $59,500 plus a broker's fee of $1,000.Convell Company has a total of 25,000 shares of common stock outstanding and it is presumed the Barber Company will have a significant influence over Convell.During each of the next two years,Convell declared and paid cash dividends of $0.85 per share,and its net income was $72,000 and $67,000 for Year 1 and Year 2,respectively.The January 12,Year 3,entry to record Barber's sale of 3,000 shares of Convell Company stock,which represents 60% of Barber's total investment,for $39,000 cash should be:

Accepted Answer

- The original cost of the 5,000 shares is $59,500 + $1,000 broker's fee = $60,500.
- 60% of the investment is 3,000 shares (5,000 shares * 60%)
- The carrying value of the 3,000 shares is 3,000/25,000 * total carrying value = $36,300 (where total carrying value is 5,000 shares * cost per share = $12.10 per share)
- The proceeds from the sale is $39,000, which is higher than the carrying value of $36,300. Therefore, there is a loss on sale of investment.
- The loss on sale of investment is proceeds - carrying value - broker's fee = $39,000 - $36,300 - $880 (broker's fee for selling) = $8,880
- The journal entry would be: debit Cash $39,000, debit Loss on Sale of Investment $8,880, credit Long-Term Investments $47,880.

Question 5

On November 12,Higgins,Inc. ,a U.S.Company,sold merchandise on credit to Kagomeof Japan at a price of 1,500,000 yen.The exchange rate was $0.00837 per yen on the date of sale.On December 31,when Higgins prepared its financial statements,the exchange rate was $0.00843.Kagomepaid in full on January 12,when the exchange rate was $0.00861.On December 31,Higgins should prepare the following journal entry:

Accepted Answer

The change in exchange rate from the sale date to December 31 results in a gain. The receivable increases by $90 (1,500,000 yen * ($0.00843 - $0.00837)).

Question 6

McVeigh Corp.owns 40% of Gondor Company's common stock.McVeigh received $41,200 in cash dividends from Gondor.The entry to record this transaction should include a:

Accepted Answer

The answer of McVeigh Corp.owns 40% of Gondor Company's common...

Question 7

On July 31,Potter Co.purchased 2,000 shares of GigaTech stock for $16,000.The investment is classified as available-for-sale securities.On October 31,which is Potter's year-end,the stock had a fair value of $20,000.Potter should record a:

Accepted Answer

Potter should record a credit to Unrealized Gain-Equity for $4,000 to reflect the increase in fair value of the available-for-sale securities from $16,000 to $20,000.

Question 8

MotorCity,Inc.purchased 40,000 shares of Shaw common stock for $232,000.This represents 40% of the outstanding stock.The entry to record the transaction includes a:

Accepted Answer

The entry to record the purchase of 40,000 shares of Shaw common stock for $232,000 would include a debit to Long-Term Investments for $232,000. This represents the cost of the investment and the fact that MotorCity, Inc. now owns 40% of the outstanding stock. The other choices do not accurately reflect the transaction or the account that should be debited.

Question 9

Six months ago,a company purchased an investment in stock for $70,000.The investment is classified as available-for-sale securities.The current fair value of the stock is $68,500.The company should record a:

Accepted Answer

Since the fair value of the stock has decreased, the company should recognize an unrealized loss in their equity section. The amount of the loss is calculated by subtracting the current fair value from the original cost, which is $70,000 - $68,500 = $1,500. Therefore, the company should record a debit to Unrealized Loss-Equity for $1,500.

Question 10

On March 15,Alan Company purchased 10,000 shares of Cameo Corp.stock for $35,000.The investment is classified as available-for-sale securities.On June 30,the stock had a fair value of $34,000.Alan should do which of the following?

Accepted Answer

The answer of On March 15,Alan Company purchased 10,000 shares...

Question 11

When a U.S.company makes a credit sale to an international customer and the sale terms are for payment in a foreign currency,the foreign exchange rate used to record the sale is the exchange rate:

Accepted Answer

The foreign exchange rate used to record the sale is the exchange rate on the date of the sale, as that is the most accurate and relevant rate to use for the transaction. Waiting 30 days, until the end of the seller or buyer's fiscal year, or until final payment is made could result in using outdated exchange rates that do not reflect the value of the transaction at the time it occurred.

Question 12

Bharrat Corporation purchased 40% of Ferris Corporation for $100,000 on January 1.On October 17 of the same year,Ferris Corporation declared total cash dividends of $12,000.At year-end,Ferris Corporation reported net income of $60,000.The balance in the Bharrat Corporation's Long-Term Investment-Ferris account at December 31 should be:

Accepted Answer

Bharrat Corporation's share of Ferris Corporation's net income is 40% of $60,000, which is $24,000. The dividends received are 40% of $12,000, which is $4,800. The investment account is adjusted by adding the share of net income and subtracting the dividends received: $100,000 + $24,000 - $4,800 = $119,200.

Question 13

If a company owns more than 20% of the stock of another company and the stock is being held as a long-term investment,which method would the investor normally use to account for this investment?

Accepted Answer

If a company owns more than 20% of the stock of another company and the stock is being held as a long-term investment, the investor is considered to have significant influence over the investee. In this case, the equity method is the appropriate accounting method to use. The equity method requires the investor to record its share of the investee's income and adjust the investment account for these distributions or changes in the investee's net assets.

Question 14

On January 4,Year 1,Barber Company purchased 5,000 shares of Convell Company for $59,500 plus a broker's fee of $1,000.Convell Company has a total of 25,000 shares of common stock outstanding and it is presumed the Barber Company will have a significant influence over Convell.During each of the next two years,Convell declared and paid cash dividends of $0.85 per share,and its net income was $72,000 and $67,000 for Year 1 and Year 2,respectively.What is the book value of Barber's investment in Convell at the end of Year 2?

Accepted Answer

The answer of On January 4,Year 1,Barber Company purchased 5,000...

Question 15

Zhang Corp.owns 40% of Magnor Company's common stock.Magnor pays $97,000 in total cash dividends to its shareholders.Zhang's entry to record this transaction should include a:

Accepted Answer

The answer of Zhang Corp.owns 40% of Magnor Company's common...

Question 16

J.P.Industries purchased 2,000 shares of Yang's common stock for $143,000 as a long-term investment.The investment is classified as available-for-sale securities.The par value of the stock was $1 per share.J.P.paid $375 in commissions on the transaction.J.P.'s entry to record the purchase transaction would include a:

Accepted Answer

The purchase price of $143,000 plus the commission of $375 should be debited to Long-Term Investments-AFS, totaling $143,375.

Question 17

Segmental Manufacturing owns 35% of Glesson Corp.stock.Glesson pays a total of $47,000 in cash dividends for the period.Segmental's entry to record the dividend transaction would include a:

Accepted Answer

Segmental Manufacturing owns 35% of Glesson Corp. stock, so it is entitled to 35% of the $47,000 in cash dividends paid by Glesson. This amounts to $16,450 ($47,000 x 35%). The entry to record the dividend transaction would include a credit to Long-Term Investments for $16,450.

Question 18

A U.S.company makes a sale to a foreign customer receivable in 30 days in the customer's currency.The sale would be recorded by the U.S.company on the date:

Accepted Answer

The sale is recorded on the date of sale using the current exchange rate to convert the foreign currency amount into U.S. dollars.

Question 19

Madison Corporation purchased 40% of Jay Corporation for $125,000 on January 1.On June 20 of the same year,Jay Corporation declared total cash dividends of $30,000.At year-end,Jay Corporation reported net income of $150,000.The balance in Madison Corporation's Long-Term Investment-Jay Corporation account as of December 31 should be:

Accepted Answer

Madison Corporation's investment is accounted for using the equity method since it owns 40% of Jay Corporation. The initial investment is $125,000. Madison's share of Jay's net income is 40% of $150,000, which is $60,000. Madison's share of the dividends is 40% of $30,000, which is $12,000. The balance is calculated as $125,000 + $60,000 - $12,000 = $173,000.

Question 20

On June 18,Wyman Company (a U.S.Company)sold merchandise to the Nielsen Company of Denmark for €60,000 (Euros),with a payment due in 60 days.If the exchange rate was $1.35 per euro on the date of sale and $1.14 per euro on the date of payment,Johnson Company should recognize a foreign exchange gain or loss in the amount of:

Accepted Answer

To calculate the foreign exchange gain or loss, we need to first convert the Euro amount into US dollars at the two different exchange rates:

- On June 18: €60,000 x $1.35/Euro = $81,000
- On August 17 (60 days later): €60,000 x $1.14/Euro = $68,400

The US dollar amount has decreased by $81,000 - $68,400 = $12,600. Since the US dollar has strengthened against the Euro, this represents a foreign exchange loss for Wyman Company.

Therefore, the correct answer is E) $12,600 loss.

Quiz 15: Investments and International Operations